Political Science

The Census Bureau, the authoritative source of health insurance data for more than three decades, is changing its annual survey so thoroughly that it will be difficult to measure the effects of President Obama’s health care law in the next report, due this fall, census officials said.

The changes are intended to improve the accuracy of the survey, being conducted this month in interviews with tens of thousands of households around the country. But the new questions are so different that the findings will not be comparable, the officials said.

An internal Census Bureau document said that the new questionnaire included a “total revision to health insurance questions” and, in a test last year, produced lower estimates of the uninsured. Thus, officials said, it will be difficult to say how much of any change is attributable to the Affordable Care Act and how much to the use of a new survey instrument.

“We are expecting much lower numbers just because of the questions and how they are asked,” said Brett J. O’Hara, chief of the health statistics branch at the Census Bureau.

With the new questions, “it is likely that the Census Bureau will decide that there is a break in series for the health insurance estimates,” says another agency document describing the changes. This “break in trend” will complicate efforts to trace the impact of the Affordable Care Act, it said.

Obviously with a big new law you need new questions too, I suppose, plus the old questions ought not to hang around.  You can read more here.

As a side note, I have been reading far too many blog posts about “numbers enrolled” as a metric of success for Obamacare.  That has never been a good test of the serious criticisms (and defenses) of ACA.

I thank Megan and Garett for the pointers.

Addendum: You should read this update from Vox, though I am not satisfied with the Administration’s response.

Michael Ben-Gad, a professor at London’s City University who has studied the credibility of long-term promises by governments, questions whether Nato’s commitment to collective defence is absolute and asks what would happen if Russia’s border guards crossed the bridge that separates Narva from Ivangorod and took the Estonian town.

“Would the US and western Europe really go to war to defend the territorial integrity of Estonia? I think Estonia has reasons to worry. Narva is the most obvious place; it is almost completely Russian-speaking,” he says.

More than 82 per cent of Narva’s residents are ethnic Russians and 4 per cent are ethnic Estonians. More than a third have Russian citizenship.

Here is the FT article, here are photos of Narva.  Here is a map of Narva:


I would like this post and its comments to be a useful resource for people looking to read about Modi’s economic policies, whether from the past in Gujarat or for his likely future in a national leadership post.

Please do offer your suggestions for reading, or put forward your own insights, economics and analytics only.  If you are simply offering your opinion about Indian politics, or non-economic aspects of Modi, which occasion all sorts of non-factual emotional reactions, we will delete your comment in the interests of making the section useful and focused overall.

I thank you all in advance for contributing to this resource.

Catherine Rampell has an excellent blog post on this question, here is one bit:

Since the mid-1990s, the biggest increases in spending have gone to those who were middle class or hovering around the poverty line. Meanwhile, Americans in deep poverty — that is, with household earnings of less than 50 percent of the official poverty line — saw no change in their benefits in the decade leading up to the housing bubble. In fact, if you strip out Medicare and Medicaid, federal social spending on those in extreme poverty fell between 1993 and 2004.

Then, during the Great Recession and not-so-great recovery, automatic stabilizers kicked in and Congress passed new, mostly temporary, stimulus measures (such as unemployment-insurance benefit extensions). As a result, spending on the social safety net increased sharply and this time for a broader swath of Americans, including the very poor, “near-poor” and middle class. But it still rose more for people above the poverty line than it did for the very poor, Moffitt found.

Other public policies not captured by Moffitt’s calculations have also effectively diverted funds away from the very poorest Americans. Consider the rise of “merit-based,” non-means-tested financial aid at public colleges or the increasing number of tax breaks and loopholes known as “tax expenditures,” more than half of which accrue to the top income quintile.

And another:

Since the early 1990s, politicians have deliberately shifted funds away from those perceived to be the most needy and toward those perceived to be the most deserving. The bipartisan 1996 welfare reform — like the multiple expansions of the earned-income tax credit — was explicit about rewarding the working poor rather than the non-working poor. As a result, total spending per capita on “welfare” slid by about two-thirds over the past two decades, even as the poverty rate for families has stayed about the same. Many welfare reformers would consider this a triumph. If you believe many of the poorest families are not out of work by choice, though, you might have a more nuanced view.

Meanwhile, there is probably greater political cover for expanding the safety net for the middle class (that is, the non-destitute). As mid-skill, mid-wage jobs have disappeared — what’s known as the hollowing-out of the labor market — middle-class families have lost ground and are demanding more government help. These middle-class families, alongside the elderly, are also substantially more likely to vote than are the poor. The feds have whittled away at welfare, and (almost) nobody has said boo; touch programs that the middle class relies on, and electoral retribution may be fierce.

The piece is interesting throughout.

We found that only one out of six Americans can find Ukraine on a map, and that this lack of knowledge is related to preferences: The farther their guesses were from Ukraine’s actual location, the more they wanted the U.S.  to intervene with military force.

…the median respondent was about 1,800 miles off — roughly the distance from Chicago to Los Angeles — locating Ukraine somewhere in an area bordered by Portugal on the west, Sudan on the south, Kazakhstan on the east, and Finland on the north.

That is from Monkey Cage, there is more here.  The guesses look like this:


For points I thank Kevin Lewis and Samir Varma.

Paul Krugman considers who is helped and hurt by higher rates of price inflation, and he sees the big losers as the wealthy oligarchs (and see his column today here).  In contrast, I see the big losers as those with protected service sectors jobs who do not wish to have their contracts reset.  If you are a schoolteacher, a nominal wage cut is likely to mean a real wage cut because you don’t have the power to renegotiate into a deal as good as the one you started with.  The declining labor mobility of the United States in general means that workers are more vulnerable to higher rates of price inflation.  A guy living in Cleveland who plans on leaving for Houston is probably less worried about nominal variables, because he will be doing a new contract negotiation anyway.

We all know that inflation is extremely unpopular with voters.  We also observe that inflation remains extremely unpopular in a variety of northern European economies, which typically have more egalitarian distributions of income (though not always wealth) than does the United States.  In any case the top 0.1 percent in those countries has less wealth per capita than in the U.S. and, at least according to progressives, less political influence too.

Of course the ability of inflation to erode rents is one of its virtues.  The super-wealthy are often earning rents, but typically those rents are structured to be relatively robust to changes in nominal variables.  For instance the rent might take the form of IP rights, or resource ownership rights.  Simple loans of money, as we find in traditional creditor-debtor relationships, just aren’t monopolizable enough or profitable enough to be a major source of riches for the most wealthy.

I was puzzled by this comment on Krugman’s:

But there is one small but influential group that is in fact hurt by financial repression which is just like what Hitler did to the Jews: again, the 0.1 percent.

People that wealthy can put their money into hedge funds, private equity, private capital pools, and the like.  Of course there is risk involved but they have a chance as good as anyone to earn the highest rates of return prevailing in an economy, through creative uses of equity and on top of that very good accountants and tax lawyers.  The very wealthy also have the greatest ability to hedge against inflation using derivatives and commodities, if they do desire.

In other contexts, Krugman (correctly) stresses that price inflation lowers the real exchange rate of a country (and thus is not neutral, supporting the view that nominal variables really do matter).  So one big group of gainers from domestic inflation are those who invest lots of money overseas, wait for some inflation, and eventually convert their foreign currency holdings back into dollars for a very high net rate of return.

Which group of people might that be?  The super wealthy of course.  (This internationalization of returns for the super wealthy, by the way, is one big difference between current times and the 1970s.)

I am not suggesting that the very wealthy are out there pushing for higher inflation.  But they are much more protected against such inflation than Krugman’s analysis suggests, and the middle class in protected service sector jobs is more vulnerable than is usually recognized.  There is a reason why 4-6% price inflation has become the new third rail of American politics.

Addendum: Here are some related comments from Brad DeLong.  I understand the very wealthy as believing (rightly or wrongly) that higher rates of price inflation increase economic uncertainty without providing much in the way of benefit for the real economy.  So, given that belief, why should they favor higher price inflation?  Since the status quo is based on low rates of price inflation, a switch to higher inflation would in fact disrupt markets (for better or worse), which would send a kind of self-validating short-run signal, at least apparently affirming this view held by the super wealthy that inflation will increase economic uncertainty.

George Washington University Graduate School of Political Management just announced that it is launching a new masters program in international lobbying.

There is more here, via Peter Metrinko.

The Supreme Court just voted to eliminate aggregate contribution limits, here is David’s response:

The McCutcheon decision is a rare win for the parties. It enables party establishments to claw back some of the power that has flowed to donors and “super PACs.” It effectively raises the limits on what party establishments can solicit. It gives party leaders the chance to form joint fund-raising committees they can use to marshal large pools of cash and influence. McCutcheon is a small step back toward a party-centric system.

In their book “Better Parties, Better Government,” Peter J. Wallison and Joel M. Gora propose the best way to reform campaign finance: eliminate the restrictions on political parties to finance the campaigns of their candidates; loosen the limitations on giving to parties; keep the limits on giving to PACs.

Parties are not perfect, Lord knows. But they have broad national outlooks. They foster coalition thinking. They are relatively transparent. They are accountable to voters. They ally with special interests, but they transcend the influence of any one. Strengthened parties will make races more competitive and democracy more legitimate. Strong parties mobilize volunteers and activists and broaden political participation. Unlike super PACs, parties welcome large numbers of people into the political process.

There is more here.  Ray LaRaja makes related points here.

Was Marx right?

by on March 31, 2014 at 6:15 am in Economics, History, Political Science | Permalink

Here is an NYT forum, involving myself, Michael Strain, Brad DeLong, and others.  My piece is here, excerpt:

Marx pointed out, again perceptively, that capitalism might be subject to a declining rate of profit, and indeed the rate of productivity growth generally has been lower since the 1970s. But why? I would cite energy price shocks, greater investments in environmental goods (which may well be optimal), political dysfunction, the difficulty of topping the amazing achievements of the early 20thcentury, a bit of cultural complacency, and a generally greater aversion to risk, failure and also the new NIMBY “not in my backward” mentality. Most of Marx’s analytical constructs are convoluted, replete with contradictions, and in any case not ideally suited toward analyzing those problems.

We should always be willing to learn from the past, and I do count Marx, for all his flaws, among the great economists. But we should not forget that he was in fact wrong about most things, not just about the totally impractical nature of his communist alternative.

That is the new book by Robert D. Kaplan, and the subtitle is The South China Sea and the End of a Stable Pacific.  Since this is possibly the most important topic in the world right now, you should read this book.  Here is one interesting excerpt of many:

According to Yale professor of management and political science Paul Bracken, China isn’t so much building a conventional navy as an “anti-navy” navy, designed to push U.S. sea and air forces away from the East Asian coastline.  Chinese drones putting lasers on U.S. warships, sonar pings from Chinese submarines, the noisy activation of Chinese smart mines, and so on are all designed to signal to American warships that Beijing knows about their movements and the United States risks a crisis if such warships get closer to Chinese waters.  Because “relations with China are too important to jeopardize with a military confrontation,” this anti-access strategy has a significant political effect on Washington.  “The strategic impact of China’s agility is not so much to tilt the military balance in its direction and away from the United States.  Rather,” bracken goes on, “it introduces new risks into the American decision-making calculus.”

Some chapters of this book are deeper and better thought out than others, but still it is definitely worth reading.

I don’t feel I have gotten to the bottom of this, but here is an interesting contrarian perspective:

“According to my records, 2013 is the second year in a row in which China’s actual defense spending wound up being significantly less than was announced at the beginning of the year,” said Roger Cliff, senior fellow with the Asia Security Initiative at the Atlantic Council.

“The announced budget in March 2013 was … an increase of 10.7 percent over 2012. Actual expenditure in 2013 was … an increase of only 7.6 percent over 2012.”

The announced increases also never account for inflation, Cliff said. “Inflation in 2013 was expected to be 3.2 percent, official inflation figures for 2013 haven’t been released yet, as far as I know, so the increase in defense spending from 2012 to 2013 was only 4.3 percent in real terms.

“In fact, since 2009, China’s defense budget has grown by an average of only 4.7 percent in real terms,” Cliff said. “And yet, because the increases are always announced in nominal terms, not real terms, and the budgets announced at the beginning of the year have been exceeding the amount actually spent, everyone is still talking about ‘annual double-digit increases in China’s defense spending.’ ”

The full article is here.

Here are some options:

1. Putin is a crazy hothead who is not even procedurally rational.  Merkel received that impression from one of her phone calls with him.

2. Putin is rational, in the Mises-Robbins sense of instrumental means-ends rationality, namely that he has some reason for what he does.  He simply wills evil ends, namely the extension of Russian state power and his own power as well.

3. Putin is fully rational in the procedural sense, namely that he calculates very well and pursues his evil ends effectively.  In #2 he is Austrian but in #3 he is neoclassical and Lucasian too.  He knows the true structure of the underlying model of global geopolitics.


4. Putin lives in a world where power is so much the calculus — instrumentally, emotionally and otherwise — that traditional means-ends relationships are not easy to define.  Power very often is the exercise of means for their own sake and means and ends thus meld and merge.  Our rational choice constructs may mislead us and cause us to see pointless irrationality when in fact power is being consumed as both means and end.  It is hard for we peons to grasp the emotional resonance that power has for Putin and for some of his Russian cronies.  They grew up in the KGB, watched their world collapse, tyrannized to rise to top power, while we sit on pillows and watch ESPN.

Here is a former CIA chief arguing Putin has a zero-sum mentality, though I would not make that my primary framing.  Here is Alexander J. Motyl considering whether Putin is rational (Foreign Affairs, possibly gated for you).  Here is an interesting and useful discussion of differing White House views of PutinThis account of a several-hour dinner with Putin says he is prideful, resentful of domination, and hardly ever laughs.  Here is Eric Posner on Putin’s legal astuteness.

My views are a mix of #2 and #4.  He is rational, far from perfect in his decision-making, and has a calculus which we find hard to emotionally internalize.  His resentments make him powerful, and give him precommitment technologies, but also blind him to the true Lucasian model of global geopolitics, which suggests among other things that a Eurasian empire for Russia is still a pathetic idea.

Putin is also paranoid, and rationally so.  We have surrounded him with NATO.  China gets stronger every year.  Many other Russians seek to kill him, overthrow him, or put him in prison.

Assumptions about Putin’s rationality will shape prediction.  Under #1 you should worry about major wars.  With my mix of #2 and #4, I do not expect a massive conflagration, but neither do I think he will stop.  I expect he keep the West distracted and seek to turn resource-rich neighbors into vassal states, for the purpose of constructing a power-intensive, emotionally resonant new Russian/Soviet empire, to counter the growing weight of China and to (partially) reverse the fall of the Soviet Union.  Even if he does not grok the true model of the global world order, he does know that Europe is weak and the United States has few good cards it is willing to play.


Addendum: Whatever your theory of Russians in general may be, watch this one-minute video of a Russian baby conducting and give it a rethink.

The NYTimes has a very bad article on Tesla and auto dealer franchise laws. The worst bit is this mind blowing contradiction:

…most states have some limits on direct sales by auto manufacturers…These rules are generally meant to ensure competition, so that buyers can shop around for discounts from independent dealers, and to protect car dealers and franchises from being undercut by the automakers.

So there you have it, limits on direct sales ensure competition and protect car dealers from being undercut by the automakers. Sorry, but you can’t have it both ways. Which view is correct? Let’s begin with some background (drawing on a great article by LaFontaine and Morton).

Franchising arose early on in the history of the auto industry because, as in other industries, franchising can take advantage of local knowledge and at the same time control agency costs. Franchising rules evolved in Coasean fashion so that manufacturers could not expropriate dealers and dealers could not expropriate manufacturers. To encourage dealers to invest in a knowledgeable sales and repair staff, for example, manufactures promised dealers exclusive franchise (i.e. they would not license a competitor next door). But with exclusive franchises dealers would have an incentive to take advantage of their monopoly power and increase profits by selling fewer units at higher profits. Selling fewer units, however, works to the detriment of the manufacturer and the public (ala the double marginalization problem (video)). Thus the manufactures required dealers buy and sell a minimum quantity of cars, so-called quantity forcing. Selling more units is exactly what we want a monopoly to do, so these restrictions benefited manufactures and consumers.

Politics, however, began to intrude into this Coasean world in the 1940s and 1950s. Auto sales accounts for some 20% of sales taxes and auto dealers employ a lot of people so when it came to a battle in the state legislatures the auto dealers trumped the manufacturers. The result was franchise laws that were increasingly biased towards dealers. In essence, exclusive franchises became locked into place, manufactures lost the right to add dealers even with population expansion, quantity forcing became illegal and dealer termination became all but impossible.

The result of dealer rent seeking has been higher auto prices for consumers, about 6% higher according to one (older) study by the FTC. Consumers have been stiffed in other ways as well. In some states, for example, manufacturers were required to reimburse dealers for a repair under warranty whatever amount the dealers would have charged consumers for the same repair not under warranty. As a result, dealers had an incentive to increase their price to consumers because that increased what they would be reimbursed for repairs under warranty. The franchise laws have also resulted in a highly inefficient distribution of dealers as populations have moved but dealers have been frozen into place. The inability to close, move or consolidate dealers has impacted the big-3 American firms especially because they have older networks. As a result, a typical GM dealer sells 377 cars a year while a typical Honda dealer sells 1,062 and a Toyota dealer 1,488.

Tesla wants to sell directly to the public but more generally what we need is to restore the Coasean balance, put dealers and manufacturers back on a equal footing and let the market decide the most efficient means of retailing and distributing automobiles.

Addendum: Dan Crane and Lynne Kiesling have further posts on this topic.

Today, March 16, is Open Borders Day, a day to celebrate the right to emigrate and the right to immigrate; to peacefully move from place to place. It is a day worth celebrating everywhere both for what has been done already and for the tremendous gains in human welfare that can but are yet to be achieved. It is also a day to reflect on the moral inconsistency that says “No one can be denied equal employment opportunity because of birthplace, ancestry, culture, linguistic characteristics common to a specific ethnic group, or accent” and yet at the same time places heavily armed guards at the border to capture, imprison, turn back and sometimes kill immigrants.

OB Logo


That is my latest NYT column and you will find it here.  Here is one excerpt:

Long before Malcolm Gladwell popularized the concept [of tipping points], Mr. Schelling created an elegant model of tipping points in his groundbreaking work “Micromotives and Macrobehavior.” The theory applies to war, as well as to marketing, neighborhood segregation and other domestic issues. In this case, the idea of negotiated settlements to political conflicts may be fraying, and the trouble in Crimea may disturb it further, moving the world toward a very dangerous tipping point.

First, some background: With notable exceptions in the former Yugoslavia and in disputed territories in parts of Russia and places like Georgia, the shift to new governments after the breakup of the Soviet Union was mostly peaceful. Borders were redrawn in an orderly way, and political deals were made by leaders assessing their rational self-interest.

In a recent blog post, Jay Ulfelder, a political scientist, noted that for the last 25 years the world has seen less violent conflict than might have been expected, given local conditions. Lately, though, peaceful settlements have been harder to find. This change may just reflect random noise in the data, but a more disturbing alternative is that conflict is now more likely.

Why? The point from game theory is this: The more peacefully that disputes are resolved, the more that peaceful resolution is expected. That expectation, in turn, makes peace easier to achieve and maintain. But the reverse is also true: As peaceful settlement becomes less common, trust declines, international norms shift and conflict becomes more likely. So there is an unfavorable tipping point.

In the formal terminology of game theory, there are “multiple equilibria” (peaceful expectations versus expectations of conflict), and each event in a conflict raises the risk that peaceful situations can unravel. We’ve seen this periodically in history, as in the time leading up to World War I. There is a significant possibility that we are seeing a tipping point away from peaceful conflict resolution now.

Do read the whole thing.

More generally, here is a new edited volume on the economics of peace and conflict, edited by Stergios Skaperdas and Michelle Garfinkel.

And here is the new forthcoming Robert Kaplan book Asia’s Cauldron: The South China Sea and the End of a Stable Pacific.  I have pre-ordered it.